Alaric wrote:TheMotorcycleBoy wrote: But given their P&L position of loss so far, it's a mystery to me that the current PE valuation of the firm sits at about 90.
On a superficial view, they get revenue which they then defer. That enables them to report positive revenues, positive cash flow but negative profit. The implication is that they charge up front for future services which is perhaps something of a traditional software model.
If the business is mature, not making a profit does however suggest they are spending more on marketing , expenses, research and development than they get back in profit on sales.
I later observed deferred revenue as being mentioned in sophos's balance sheets:
https://investors.sophos.com/en-us/medi ... t-2018.pdfCurrent liabilities 2018 2017
Deferred revenue 423.9 330.6
Non-Current liabilities 2018 2017
Deferred revenue 331.8 250.4
but why is it referred to as a liability?
Alaric replied again:
Alaric wrote:It's money in the bank that cannot be declared as profit. Classing it as a liability makes it work that way in double entry accounting. Roll forward a period and some of it can be declared as a profit.
As an example, you sell a software licence for 100, but it may cost anywhere between 0 and 50 in support costs over the declared product lifetime. Profit (this year) is 50, even though revenue is 100.
I have to say, I'm still a bit confused. Though I admit I've not been mulling it over that long...
All I can currently say, is it sounds very much like the reverse of the "Capitalisation of Expenses into Intangible Assets". i.e. instead turning a cost to an asset, the income has been turned to a liability. Correct?